By Mike Miles
February 20th, 2014 | Uncategorized
Q. I work for the Defense Department. I have $75 biweekly going into the G Fund. I am in my early 30s and want to build my money. I don’t see it moving much in the G Fund, and I have been investing for four years. I can afford to invest $100 biweekly but don’t know what fund to put my money in for it to grow. My annual income is $38,780.
A. Given your circumstances, I suggest that you invest all of your Thrift Savings Plan money in the L 2050 Fund for the foreseeable future.
February 12th, 2014 | Uncategorized
Q. I saw you use the term risk efficiency in a recent response, and it made me curious. I have a nice little amount in the Thrift Savings Plan now. I don’t think I will be needing it in the future, except to hand down to future heirs, and so have tried to maintain a 70 percent stocks (35 percent C, 15 percent S and 20 percent I), 15 percent F, 15 percent G ratio. I read in a financial magazine (sometime around 2009) that a 70/30 ratio of stocks to bonds and/or cash reduced the risk considerably over a 100 percent stock portfolio, and didn’t reduce returns significantly. Do you agree, or do you have some other thoughts on what is risk-efficient for long-term growth?
A. Risk efficiency is a measure of how close an investment portfolio lies to the “Efficient Frontier” — the set of portfolios that mix assets together in ways that produce the maximum expected rate of return for the level of risk they produce. I can’t tell you how risk-efficient your asset allocation model is, but I’d guess it’s pretty risk efficient. Note that this doesn’t mean that it’s risk-appropriate. The correct asset allocation will be both.
February 10th, 2014 | Uncategorized
Q. I have 14 years of federal service and have always been in the C Fund 100 percent, currently with $230,000. For the past few years, I’ve contributed at 15 percent. I was not very attentive to my Thrift Savings Plan and, after 2008, was leery of moving after the big losses and getting into L2030. In 2013, the C Fund was amazing, but 2014 has been way down so far. How do I know the right time to transfer the whole thing to an L Fund, and is that the right thing? I will probably retire by 2035.
A. Your current asset allocation scheme is risk-inefficient. You should move to the appropriate risk-efficient asset allocation scheme, using all five of the TSP’s basic funds, as soon as possible.
January 29th, 2014 | Uncategorized
Q. It seems everywhere a person reads, the “expert” advice is to get out of bonds. It’s likely that interest rates will climb soon (they certainly will not go lower), the world is awash in debt etc. Your advice is to substitute a portion of other funds in place of F.
Given the predicted bond climate, why not reduce F Fund allocation to near zero? Is there some reason I’m missing for maintaining an allocation in F above low single digit percentages or perhaps no F fund allocation at all? In other words, if the F Fund is about to incur losses, why not move it all out for the short term?
A. As I have said, and you confirm, I have no objection to substituting G Fund for F Fund in the current interest rate environment. The reason to keep some allocation to bonds is for their ability to hedge stock risk. If the stock market loses 50 percent of its value again (for the third time since 2000), that F Fund exposure will look pretty smart.
January 27th, 2014 | Uncategorized
Q. I am a federal employee, almost 30 years old and contribute to my Thrift Savings Plan, as well as a Roth IRA toward retirement. I contribute the maximum to my Roth IRA at $5,500 a year and contribute 15 percent of my $82,500 salary (approximately $12,500 a year). I have a comfortable emergency account, life insurance, $500 per month to a 529 plan for my 1-year-old, on top of the basic necessities.
How much should I be contributing if I can’t max both my TSP and Roth IRA? Should I continue with this allocation, or should I be maxing my TSP at $17,500, only putting $500 into my Roth IRA. After reviewing some items, I do not know the pros and cons to each as far as this allocation of funds.
A. I suggest that you maximize your TSP contributions before contributing to any other retirement account. The TSP is the best retirement savings and investment vehicle you’ll find. Its low cost and access to the G Fund make it so. What makes you think that your Roth IRA is a better choice?
January 27th, 2014 | Uncategorized
Q. In your recent column “4 keys to TSP success,” you mentioned, regarding asset allocation, to “diversify your holdings among cash, stocks and bonds to hedge the risk lower.” I agree with this approach wholeheartedly, but ask where in the TSP to keep “cash”? There is no money market option, just the L funds (which I don’t use, preferring to personally allocate my investments), and the G, F, C, S and I funds.
By the way, I took everything out of the G Fund and ceased all future allocations to it when there was a proposal by our leaders last year for the federal government to be able to borrow against it. Do you have any update or comment on this proposal?
A. The G Fund is a cash equivalent with an above-market rate of return. It’s as safe as anything you’ll find.
January 22nd, 2014 | Uncategorized
Q. I’m 33 years old and have been in the federal government since 2004. I own a house and max out my Thrift Savings Plan every year into the L2040 fund. Can I be more aggressive with my allocations? I won’t be able to retire until at least 2034.
A. You can be more aggressive, but I can’t tell you if you should without the benefit of more information and some solid planning and analysis. The allocation you use should depend entirely on your unique resources, goals and circumstances.
January 6th, 2014 | Uncategorized
Q. I’m a federal employee, I contribute 6 percent to my Thrift Savings Plan account I’m planning on putting more into my account this year. When the market went sour and I lost money, I put everything in the G Fund. If that fund doesn’t do anything, is there any advice you can give me?
A. Sounds like you’ve done exactly the opposite of what you should have done. Managing your resources to support your financial goals with a minimum of risk is complex exercise. It requires strong analytic skills, diligence and a cool head. If you’re not up to the task, I suggest that you find someone to help you. There is no one-size-fits-all investment strategy.
December 30th, 2013 | Uncategorized
Q. I will be retiring in January. I have approximately $180,000 the G Fund. Should I consider the one-time withdrawal to a money market account that is FDIC-insured so I can have some liquidity in my cash flow? Could you recommend such a fund? Could you recommend any restructuring of my Thrift Savings Plan to accommodate current federal reductions in the stimulus program?
A. Yes, should consider taking a withdrawal from your TSP account to provide needed liquidity, but only if no other resources are available to do the job. The best place for liquid cash reserves in this economy is FDIC-insured bank savings.
To mitigate bond risk in today’s low-interest rate environment, I suggest that you substitute some G Fund for some of the F Fund in your asset allocation scheme.
December 30th, 2013 | Uncategorized
Q. A sad tale: I am 64 and still working for the Defense Department. For most of my career, I have left my money in the G Fund except for some short periods where some of it was in the C Fund. I now have $430,000 in the G Fund but just can’t find it in myself to diversify although I see that I have lost a lot of money over the years this way. Can you recommend a relatively safe future strategy that won’t keep me awake at night?
A. Find a trustworthy and affordable adviser to help you.